State of Telecom Industry in Pakistan

As discussed earlier of a possible acquisition of Telenor Pakistan by China Mobile Pakistan (CMPak) possibly to let Telenor get a green signal to enter the India.

The lastest news is that India is set to grant Telenor the necessary security clearance to increase its stake in Unitech Wireless to the legal maximum of 74% – but only on the condition that no employees from Telenor’s Pakistan subsidiary work for the Indian company.

The Economic Times newspaper notes that the Foreign Investment Promotion Board (FIPB) was due to approve the investment, but delayed its decision pending a review of the security situation. Keeping the human assets of the Indian and Pakistani arms of Telenor separate is expected to take care of risks such as spying and subversion. The plan is reported to require that any Telenor employee who is, or has ever worked in Pakistan will be blocked from working in India.

At one end the leadership of India are on talk tables to increase trade and grow relations with Pakistan, whereas at the same time imposing ban on employees who is or has ever worked in Telenor Pakistan to work in India.

With this ban Telenor Pakistan’s CEO, Jon Eddy Abdullah, a non Pakistani and other foreigners associated with Telenor Pakistan will also not be allowed to work in India.

Telenor is also a majority shareholder in Bangladesh’s Grameenphone, but this was not considered to be such a significant security risk.

Few days back, there was rumour on TGP of possible merger of Telenor and Zong. Dawn News has confirmed of possible merger negotiations.

According to sources, Telenor group is interested to sell its shares in Pakistan and is holding talks with the China Mobile.Though both the operators have denied any such development, sources said that negotiations were being held secretly at the group level.

Though Telenor, a Norwegian company, has a subscriber-base of 20 million or so in Pakistan, it has been deliberating to sell its management shares since long because of ‘security issues’.

The Telenor group has already focused on India for investment, as it recently sought to buy about 67 per cent shares of Unitech Wireless and telecom arm of Unitech Ltd in India.

The Indian market is experiencing a major growth in mobile penetration and currently it stands at 27 per cent with a total population of about 1.2 billion.

There has been a lot of potential in the market and the global operators see it a best place for future market. China Mobile’s first international business venture, Zong, currently has over six million subscribers.

Before the merger talks with the Telenor group, the China Mobile had offered to buy the management shares of Warid Telecom Pakistan. However, deal could not materialise owing to price issue.

Mobilink, Telenor, Ufone, Warid and Zong (CM-Pak) have reportedly conveyed to the PTA that there was a room for only ‘four’ players.

A PTA official said there were chances that by 2010, the country may have four operators.

The number of cell-phone users in Pakistan has reached over 90 million. Though Average Revenue Per User (ARPU) shows declining trend over the last few years, aggressive marketing and expansion of network has enabled mobile operators to grab more subscribers on their networks.

[via DAWN.COM]

Alcatel-Lucent today announced that Nayatel is preparing to deploy the first gigabit passive optical network (GPON) in Pakistan. This blazing fast network will provide its customers with the most advanced triple-play services – such as high-definition television, innovative telephony services and ultraband Internet access. Nayatel’s Pakistani customers can expect the new network to be up and running by the end of 2009. Wahaj us Siraj, CEO, Nayatel said:

In 2005, Nayatel was the first operator to deploy a fiber-to-the-home (FTTH) network solution in South Asia, and today we have once again pioneered the Pakistani market by becoming the first adopter of GPON technology in the country.

With Alcatel-Lucent’s industry-leading GPON solution, we will be able to offer our customers a whole new range of next-generation, ultraband applications that leverage our network’s true gigabit speeds. All in all, we will soon be able to offer our customers a service experience which was once only dreamed in this part of the world.

“Nayatel’s GPON deployment in Pakistan, will enable their end-users to truly experience the power of next-generation triple-play services,” said Vincenzo Nesci, President of Alcatel-Lucent’s business in the Middle East and Africa. “This contract highlights Nayatel’s continuous confidence in our solutions and expertise,” he adds.

According to the latest MRG IPTV Market Leaders report , Alcatel-Lucent dominates the global IPTV Access market with a 41% market share (four times the market share of its nearest competitor). In its report, MRG confirms that Alcatel-Lucent is the only vendor focusing on all four (geographic) regions, and is deployed in 10 out of the top 25 IPTV service providers worldwide. From an FTTH perspective, Alcatel-Lucent has more than 90 fiber deployments ongoing worldwide, with a mix of GPON and point-to-point roll-outs.

Media has reported that Etisalat is thinking about gaining majority stake in PTCL. What would Etisalat gain from this? When will be a good time to make that additional investment? The core issue for Etisalat include the management of workforce and to capitalize on potential of PTCL. Without any insider information, my guesstimate is that ineffeciencies in PTCL are any where from 5-15%. What do you think? I think another interesting question to ask will be: Based on the recent performance of PTCL, will you buy PTCL shares?

Etisalat is considering raising its stake in PTCL from the 26 per cent it bought for $2.6bn in 2005 to 51 per cent, Mr Omran said, giving Etisalat operational control.

“We have an option in our original contract to increase our stake in PTCL by 25 per cent. However, timing as to when we will do it is not decided yet,” he said. “This is definitely an option under consideration but it is not happening in immediate future.”

Mr Omran said that although Etisalat had the first option to increase its stake, Pakistan government regulations allowed offers from other operators, and that could be a long procedure.

He said the company was also keen to bid for a 3G licence in Pakistan.

Khaleej time ran this story, a verification to my earlier posts about the robustness of the telecom sector in Pakistan. Excerpts below.

After several years of major investment — a good deal of FDI inflows, including those originating from United Arab Emirates — has put telecoms on the fastest growth track. The investment in fiscal 2008 was $3.1 billion compared to $4 billion in 2007.

The new inflow in 2008 includes $2.3 billion in cellular segment alone. The foreign direct investment (FDI), in the telecom sector was $1.4 billion or 28 per cent of the overall FDI inflows. It was the second highest in overall FDI inflows into Pakistan. FDI in 2007 in telecoms was $1.8 billion or 36 per cent of the overall investment of FDI in 2007. The FDI in the sector, for three years, between 2004 to 2007 was the highest in total FDI inflows.

On LDI sector.

The Long Distance International (LDI) Carrier Services, for instance increased by 40 per cent to 178 in 2008, as against 127 per cent in 2007, calculated on the basis of total Point of Presence (POP).

The LDI revenue, excluding that earned by Pakistan Telecom Corporation Ltd (PTCL), formerly the state monopoly, but which is till 74 per cent owned by the government, rose 42 per cent to Rs22 billon — up from Rs15 billion in 2007.

The PTA states the investment in LDI was $390 million in 2008, or 35 per cent less than 2007. Its 77 per cent contribution was from Link Direct at $300 million. The LDI also recorded its outgoing traffic at 1.66 billion minutes which was 31 per cent more than 2007. The LDI incoming traffic grew by 163 per cent to 5.5 billion minutes — against 2.0 billion minutes in 2007. Most of it was routed from UK which accounted for 37 per cent, and United States sharing 28 per cent.

This is the third and last part of the interview series with Universal Service Fund CEO. I hope that the three posts gave a good overview of the initiative. We will track and share the progress on this project. I would like to express my thanks to Mr. Parvez Iftikhar for his time and interest in sharing the details of USF.

How is USF different from Rabta Ghar scheme?

Rabta Ghar is an excellent programme started by PTA. But the nature and the size of the two programs are completely different. Rabta Ghar strives to establish “telecenters” in rural areas so that rural folks can come to the Rabta Ghar and make/receive voice and data calls. Whereas USF strives to “illuminate” entire areas in a manner that practically anyone in those areas can acquire his/her own connection. Telecenters will only be one sub-set of the USF projects – for those who cannot afford their own phones and data devices.

What plans and metrics do you have to monitor the performance and return on this investment?

Very simple. As per USF Policy we have specific laid down targets and we have to meet those targets. And with today’s technologies it is no problem to measure if those numbers have been reached or not. The measurements will be taken by professional technical auditors, who will mostly not belong to USF.

To elaborate with an example: In Mansehra Lot (consisting of the districts of Kohistan, Batagram, Abotabad, Haripur and Mansehra), there are a million people, living in 1,479 villages (spread over 11,366 Sq.Kms) who have no way of getting a phone connection. Therefore our targets are:

i. to give each one in these 1,479 villages, the possibility to get a phone connection
ii. to reach at least 5% teledensity overall, as a first step
iii. to have PCOs in villages/towns of the area that have a population above 2,000
iv. to have telecenters in towns with a population of above 10,000

The technical auditors will go to these villages and take measurements to verify that these parameters have been met, before the payments are made. The measurement work will be done in 4 phases in each Lot so that subsidies can be disbursed progressively against achievement of these 4 milestones.

Subsequently USF will hold a Bank Guarantee from each Operator worth 40% of the subsidy value and in case of any breach of contract USF will have the option of imposing penalties.

Here is part 2 of the 3-part series of interview with the Chief Executive Officer of Universal Service Fund, Pakistan. In this part Mr. Iftikhar explains about subsidies, financial allocations and the criteria/data used to select the region where USF will invest.

What is your budget and how do you apportion it for voice vs broadband?

The disbursement budget for the current year is more than 4 Billion Rupees but this is a misleading figure due to two reasons.

1. It shows the amount that will be disbursed and not the amount that will be committed by signing contracts with the operators. The committed amount is disbursed over more than one year as the projects take time to complete.
2. It must be understood that this kind of budget can only be indicative. The actual disbursement of funds depends on the subsidies determined through open competitive bidding. For instance last year we achieved our target of the number of Lots to be auctioned, however the subsidies demanded by the bidders turned out to be lower than our budget! For every 100 Rupees of investment, Operators asked 20 Rupees subsidy.

In a way this under “under-utilisation” of the budget was a good thing, in that the Operators’ stake was substantially higher. In the meanwhile this trend is undergoing change and the operators are increasingly asking for higher subsidies. As of now an investment of Rs. 5.3 Billion is taking place in those remote areas with only Rs.1.49 Billion USF subsidy.

As for its apportionment, let me answer your question by a pie char.

What criteria do you use to decide where to invest?

Our first priority is to go to unserved areas. We use data from different sources to determine which areas are really unserved. We take:
• topographic maps from Survey of Pakistan,
• satellite imagery from Suparco,
• village population data from Census Organization of Pakistan
• and finally telecom coverage from Telecom Operators

Based on this we gather the un-served areas into “Lots” and auction the Lots one by one.

In case of Broadband it was easier. We eliminated from our program, all those big cities where there is some broadband service available. Although we consider those cities to be under-served, we are not going into those large urban areas for the time being.

And in case of Optic Fiber again the decision was rather easy. We carried out a field survey to determine which Tehsils of the country do not have Optic fiber connectivity, which turned out to be 31% of the total Tehsils. That is where we have launched our programme.

The criteria as to which area to cover first, one tries to cover maximum unserved population in as short a time as possible. As in any endeavor we have are also learning as we are moving ahead. For example when we tried to auction the large Lot of Chaghi-Noshki in Baluchistan, no bidder turned up. So we broke up the very large Lots and also decided to first concentrate on Lots nearer to the served areas and then move outwards. Similarly in case of the project ‘Optic Fiber for all Tehsils’, we chose Sindh province first because that way we can cover maximum Tehsils with minimum KMs of Fiber cable – kind of low hanging fruits first.

It would be pertinent to mention here that all such proposals are discussed and debated in the Board where collective wisdom of Government as well as Private Industry is applied before such decisions are reached.

Let me add here that the level of support and help that we get from the Board Members is beyond what I ever expected – especially the Ministry and PTA. Without this we could not have moved ahead.

Dear Prepaid Customer, from now onwards 5% additional service charges (on recharge face value) will be applicable on all recharges via easyload / Jazz / UTopup  or scratch card – for all prepaid customers – Telenor, Mobilink and Ufone.

This has been a rough year for Pakistan’s economy. Now the major mobile operators like Telenor, Mobilink and Ufone have increased the prepaid service cost by 5%. The recent downward trend of the economy has eventually hit the telecom industry. Industry analysts (and this blog) predicted tough situation for the telecom sector so it wasn’t a complete surprise. While the slowdown was expected, the speed at which rates are going up and service is going down is not good. On the one hand public should face the reality that telecom services are not going to be that cheap forever. More importantly, the government should keep its share of taxes within reasonable limits. Let the market figure out the prices. We have enough competition and mobile number portability. We just don’t need the burden of extra taxes.

O3b Networks, with support from Google, Liberty Global and HSBC, plans to deploy world’s first high-speed, low-cost satellite system to transform communications access for billions worldwide. Scheduled deployment date is late 2010. The good news is that Pakistan is included in the coverage plan of “Other 3 billion”. This is a very significant development to narrow the digital divide and I will provide updates to this as they become available.

Daily Wireless has a good details and illustration about this launch with links to other sources:

O3b Networks today announced plans to launch at least 16 low earth orbit satellites to bring internet access to 3 billion people in Africa and other emerging markets. Google has joined forces with John Malone, the cable television magnate, and international banker HSBC to invest in the company.

This interesting title comes from a recent conference about 3G timing and readiness in Pakistan. It was organized by South Asia Forum in Islamabad. We have previously written about the different point of views from the regulator, network operators and infrastructure vendors. This is a classic text-book technical policy case study where each stakeholder is coming from their view point. We believe that the next 6-8 months will unfold the interesting transition to 3G and will keep the telecom industry busy. Increase in ARPU is something which needs more creative efforts and 3G is not a silver bullet for all the challenges.

This seminar was attended by many telecom celebrities of Pakistan including: the new PTA chairman Dr. Mohammed Yaseen, Telenor CEO Jon Eddy Abdullah, Saad Muzaffar Waraich, Country Director, Nokia Siemens Networks (NSN), Lasse Makinen, Member Global 3G Team – NSN, Irfan Wahab Khan, EVP & CEO LDI, Telenor Pakistan and representatives of MOITT, Warid, Huwawei & Deloitte.

By the way – can you name the personalities in the picture above (left to right)? Answer to be provided here in 2 days.

More about the conference from the press release:

The seminar was jointly sponsored by Telenor Pakistan and Nokia Siemens Networks with the PTA and Huawei Technologies co-sponsoring the event. The seminar was inaugurated and chaired by the Chairman PTA Dr. Mohammed Yaseen. He assured all present of the PTA’s cooperation and support towards the introduction of new technology and said that the PTA would soon be inviting applications for the 3G spectrum.

The industry strongly felt that in light of the extremely low Average Revenue per User (ARPU), a limited market for 3G and cut-throat pricing only a lowered 3G license fee and restriction of auction within the existing telecom operators would support a successful roll out.

I am pleased to share a report on Telecom Opportunities in Pakistan. It was prepared by Salman Ansari in Aug 2007 for Pakistan Telecom Authority (PTA). I am thankful to Ansari Sahib for sharing this useful report with all of us. I believe that reports like this which present the facts and highlight the progress made in the telecom sector of Pakistan are extremely valuable – especially for those who are from outside Pakistan and are looking for a compact summary of Pakistan telecom sector.

The report provides a concise and fact-based overview of the economy, telecom road map, regulatory environment, telecom infrastructure (broadband, international connectivity), licence and spectrum situation, investment landscape, mergers and acquisitions and of course – the opportunities, as the excerpt below shows:

All this signals opportunities in the Traditional and Value Added sectors for not only creating new businesses by riding on these systems but also to be a part of new licenses which are being reviewed. These include MVNO, Regional Hosting, Call Centers, Telecenters, Video Conferencing, Content aggregation, Converged networks, etc. On another plane, the Regulatory environment permits spectrum trading, Mergers and Acquisitions as well as entry via Private equity arrangements. The market opening has nearly doubled the sector revenues and this trend is expected to grow.

The annex has a list of licensed operators as well. Obviously this an evergreen document and one should keep in mind that the numbers represent Aug 2007 and have changed during the last 12 months.

PTA has asked for experts to bid on a study (see full pdf here) to evaluate Information and communication technology consumer premises equipment. This rather long title refers to a variety of technical gadgets. I feel that PTA wanted this study to be a generic one and avoided using common terms such as cell phones or dsl modems here and . However it would have been good for PTA to provide a few examples of such CPEs. The last date of submission is July 19. Why the haste?

I hope that the sector experts and consultants already have plenty of data to share with PTA and they will be able to come up with a high quality report. A few items from the scope of this work:

a. Define the current status of the CPE manufacturing in Pakistan
b. How much revenue is being lost by Pakistan due to import of ICT CPEs.
c. Provide proofs that current demand enough to build a dedicated CPE manufacturing industry locally.
d. Provide guidelines/procedures to be adopted on government/regulator level in order to promote local ICT CPE manufacturing concept.
f. Define a minimum amount of capital required in order to start such manufacturing facility profitably.
g. List out the CPEs that can be manufactured. In this regard consultant must also specify the areas of ICT/telecom to be focused in the first step.
h. Suggest steps to counter the threat to such local manufacturing due to low priced Chinese versions of ICT CPEs.
i. Identify the locations where this industry should be developed geographically.
k. Describe the benefits to private (foreign/local) investors, vendors, operators and general public due to this development.
l. Highlight the hindrances on all levels public or private that any stakeholder may face during start-up.
m. Scope of ICT CPE manufacturing market in Pakistan in present scenario and in future. Do we have the required manpower especially skilled needed to run the industry.